Chapter 19 & 20

Taxation: Reviewer and Quizzer 19-1 to 19-17 VALUE ADDED TAX-1 Sale o !ood or "ro"ertie# 1$ T%e value-added tax i# i&"o#ed w%en t%ere i# a #ale' (arter' or ex)%an!e o !ood# o "ro"ertie# in t%e ex)%an!e o !ood# and "ro"ertie# in t%e ordinar* )our#e o trade or (u#ine##$ +,ro"ertie# in)lude real "ro"ertie#$ +.ood# or "ro"ertie# are tan!i(le or intan!i(le o(/e)t# w%i)% are )a"a(le o "e)uniar* e#ti&ation$ 0a T%e ordinar* &eanin! o t%e ter& #ale2 0( T%e tran#er' u#e or )on#u&"tion' not in t%e )our#e o (u#ine##' o !ood# or "ro"ertie# ordinar* )our#e o (u#ine## !ood# or "ro"ertie# ordinaril* intended or #ale or u#e in t%e )our#e o (u#ine##2 0) T%e di#tri(ution or tran#er to #%are%older# or inve#tor# o #%are# in t%e "ro3t# "ro3t # o a VAT VAT-re!i#tered "er#on2 0d T%e di#tri(ution or tran#er to )reditor# in "a*&ent o de(t2 0e T%e )on#i!n&ent o !ood# i a)tual #ale i# not &ade wit%in #ixt* 045 da*# ollowin! t%e date #u)% !ood were )on#i!ned2 0 T%e retire&ent ro& or )e##ation o (u#ine##' wit% re#"e)t to inventorie# o taxa(le !ood# a# o #u)% retire&ent or )e##ation$

2. A domestic corporation on real estate business sold a building. Statement 1. The sale is not subject of the value-added tax because it is not a sale of goods or services; Statement 2. The sale is subject to the value-added tax because sale of goods and properties properties are subject to the value-added tax and real estate is within the meaning of propert. !a" True# true; !b" $alse# false; !c" True# false; !d" $alse# true. Answer d

6$ T%e value-added tax on #ale o !ood# i# (a#ed on !ro## #ellin! "ri)e$ +.ro## #ellin! "ri)e &ean#: 0a T%e total a&ount o &one* or it# euivalent w%i)% t%e "ur)%a#er "a*# or i# o(li!ated to "a* to t%e #eller in )on#ideration o t%e #ale' (arter or ex)%an!e' ex)ludin! t%e value-added tax$ T%e ex)i#e tax' i an*' on #u)% !ood#' #%all or& "art o t%e !ro## #ellin! "ri)e$ 0( T%ere )an (e downward ad/u#t&ent or t%e +#ale# return# and allowan)e#' and #ale# di#)ount# !ranted and indi)ated in t%e invoi)e at t%e ti&e o #ale and t%e !rant o w%i)% doe# not de"end u"on t%e %a""enin! o an event$

T%ereore' w%at t%e law )all# +!ro## #ellin! "ri)e i# a)tuall* not #ale#' and w%at t%e law )all# +"ur)%a#e# i# a)tuall* not "ur)%a#e#$ 8 !ro## #ellin! "ri)e or "ur"o#e# o t%e out"ut taxe# &ean# net #ale#' "ur)%a#e# or t%e "ur"o#e# o t%e 8n"ut taxe# #%all &ean no "ur)%a#e$ $ T%e tax rate# are twelve "er)ent 01; and zero "er)ent 05;$ Ex"ort #ale# are zero-rated #ale#$ 0ut"ut taxe# 0?redit 8n"ut taxe# 0?redit Value-Added Tax Tax ,a*a(le$ T%e )redit to 8n"ut Taxe# #%all not ex)eed t%e de(it to >ut"ut Taxe#' #o t%at' i 3r t%e taxa(le "eriod t%e 8n"ut Taxe# ex)eed t%e 8n"ut Taxe#' t%ere #%all (e a re&ainin! (alan)e in 8n"ut Taxe#' w%i)% #%all t%e (e availa(le or u#e in t%e #u))eedin! taxa(le "eriod$ A##u&in! t%at or a taxa(le "eriod t%e total o t%e out"ut taxe# wa# ,15'555 and t%e total o t%e in"ut wa# ,B'555' t%e /ournal entr* to re)o!nize t%e value-added tax "a*a(le #%all (e: 0De(it >ut"ut taxe# 0?redit 8n"ut taxe# 0?redit Value-added tax "a*a(le

,15'555 ,B'555 ,7'555

A##u&in! t%at or a taxa(le "eriod t%e total o t%e out"ut taxe# wa# ,45'555 and t%e total o t%e in"ut taxe# wa# ,94'555' t%e /ournal entr* to re)o!nize t%e value-added tax "a*a(le #%all (e: 0De(it >ut"ut taxe# 0?redit 8n"ut taxe#

,45'555 ,45'555

Leavin! in t%e 8n"ut Taxe# a))ount a de(it (alan)e o ,64'555 w%i)% #%all (e availa(le in t%e #u))eedin! taxa(le "eriod or de(it a!ain#t t%e new out"ut taxe# ro& t%at "eriod$ 9$ 8n )a#e o #ale# to t%e .overn&ent or an* o it# "oliti)al #u(divi#ion#' in#tru&entalitie# or a!en)ie#' in)ludin! !overn&ent owned or )ontrolled

)or"oration#' a 3nal value added tax o 3ve "er)ent 0=; i# wit%%eld on an* "a*&ent to (e &ade$ T%ere i# no )redita(le in"ut tax$ 15$ Senior )itizen# are exe&"t ro& t%e value added tax on t%e "ur)%a#e# o t%e ollowin! !ood# and #ervi)e#: edi)ine# and e##ential &edi)al #u""lie#' a))e##orie# and eui"&ent2 ee# o attendin! "%*#i)ian#2 &edi)al' dental ee# and dia!no#ti) and la(orator* ee#2 are# or tran#"ortation2 )%ar!e# in utilization o #ervi)e# o %otel#' re#taurant# and #i&ilar e#ta(li#%&ent#2 ad&i##ion ee# in )ine&a#' t%eater#' and ot%er "la)e# o )ulture lei#ure and a&u#e&ent2 and uneral and (urial #ervi)e#' 0w%i)% would' i not !iven to #enior )itizen#' (e vata(le #ale# o !ood# or #ervi)e#$ Ex"anded Senior ?itizen#F A)t o 515$ 11. %rices&costs of a 'AT Taxpaer with purchases from 'AT suppliers# 'AT not included( )ross Sales %*++#+++ Sales ,eturns and Allowances +#+++ Sales iscounts /+#+++ %urchases 21+#+++ %urchase returns and allowances 2+#+++ %urchase discounts 1+#+++ 0ow much is the value-added tax paable !a" *#++ !b" 3/#+++ !c" 23#2++ some other amount. Answer( b )ross Sales 4ess( Sales ,eturns and Allowances Sales iscounts 5et Sales 6utput taxes !+#+++ x 127" *3#++ %urchases 4ess( %urchase returns and allowances %urchase discounts 5et purchases 9nput taxes !18+#+++ x 127" 21#++ 'alue-added tax paable %3/#+++

%*++#+++ +#+++ /+#+++

*+#+++ %+#+++

21+#+++ 2+#+++ 1+#+++

12. A 'at taxpaer had the following sales in a month( :ash Sales 6pen account sales :onsignment sales !at suggested retail prices( + to + das old  on which there were remittances from consignees of 2++#+++" 1 to + das old

+#+++ %18+#+++

%2++#+++ 3++#+++

++#+++ *++#+++

!d"

1 das and above 0ow much is the taxable sales !a" 2## when made directl# is Eero-rated under the law which provides( BSales to persons or entities whose exemption under international international agreements to which the %hilippines is a signator eHectivel subjects such sales to Eero rate.C Sales to export-oriented enterprises are Eero-rated onl if( BSale of raw materials or pac>aging materials to an export-oriented enterprise whose export sales exceed sevent percent !*+7" of actual annual production.C 18. @hich of the following statements is wrong( the value-added tax is( !a" 5ot an expense; !b" A tax credit; !c" 5ot a part of the gross selling price; !d" 6n purchases# is a part of the cost of inventor. Answer( d Since the value-added tax component of a purchase purchase is debited to the input taxes account# therefore# the do not form part of the cost of inventor. 1s of accounts of a 'AT taxpaer !a" 6utput taxes; !b" 9nput taxes; !c" Fxcess input taxes carr-over; !d" 'AT 'AT paable. paa ble. Answer( c 2+. The formula( 6utput taxes !less" input taxes !e?uals" 'alue-added tax paable means that(

!a" 'alue-added taxes are not deductible from gross income; !b" 'alue-added taxes paid on purchases are prepaments; !c" 'alue-added taxes during a taxable period ma not appear in the nancial statements; !d" All the above statements are correct. Answer( d 21. Statement 1. The 6utput value-added tax is computed b multipling the gross selling price b 127; or multipling the total amount indicated in the invoice b 12&112. Statement 2. The 6utput value-added tax is computed b multipling the total amount indicated in the invoice b 127. !a" True; true !b" $alse; false !c" True; false !d" $alse; true Answer( c 22. Statement 1. 9n the boo>s of accounts of a 'AT-registered taxpaer# purchases are recorded net of input taxes; Statement 2. 9n the boo>s of accounts of a 'AT-registered taxpaer# sales are not recorded net of output taxes. !a" True; true !b" $alse; false !c" True; false !d" $alse; true Answer( a 2. Statement 1. A value-added tax pament is not an expense in the boo>s of accounts of the 'AT paable. Statement 2. The excess of input taxes over output taxes in a given month or ?uarter id a deferred charge. !a" True; true !b" $alse; false !c" True; false !d" $alse; true Answer( a 2/. )ab# a Iapanese residing in the %hilippines# bought garments from AG: :orp.# A domestic corporation# and exported the same to Iapan. Total value of the export is %1++#+++. 'AT !output tax" due on the transaction is( !a" 1+#+++; !b" 3#+++; !c" 5one# because +7 applies; !d" 5one# because the sale is exempt from 'AT. Answer( d Since )ab is not a 'AT-registered person !he is not in business". The exportation is exempt from from the value added tax# total value of export does not mean the export selling price.

23. Statement Statemen t 1. Tax pramiding is a situation where some or all of the stages of distribution of goods or services are taxed# with the accumulation borne b the nal consumer. Statement 2. A characteristic of the value-added tax is that it is a consumption tax# borne ultimatel b the users of goods or services. !a" True; true !b" $alse; false !c" True; false !d" $alse; true Answer( a

4$ ?a#)adin! eGe)t o t%e value added tax$ T%e out"ut tax o a #ellin! VAT VAT tax"a*er i# t%e in"ut tax t ax o t%e (u*in! (u*in ! VAT VAT tax"a*er$ tax"a*er$ 2*. All amounts given are are 'A 'AT not included( A# non-vat taxpaer# sells to G# 'A 'AT T taxpaer G# 'AT taxpaer# sells to :# 'AT taxpaer et value# whichever is higher. !c" The fair mar>et value shall mean the fair mar>et value as determined b the :ommissioner of 9nternal ,evenue&Eonal ,evenue&Eonal value# or the fair mar>et value as shown in the assessment rolls of the provincial or :it Assessors# whichever is higher. !d" The gross selling price is the consideration stated in the sales document# or the Eonal value# or the fair mar>et value in the assessment rolls# whichever is the highest. Answer( d et value of the propert. !a" True# true; !b" $alse# false; !c" True# false; !d" $alse# true. Answer( a /1. Statement 1. 6n sale of real propert# if the 'AT is not stated separatel in the deed of sale# the consideration stated therein shall be deemed to be inclusive of the 'AT# hence the selling price net of 'AT shall be determined to arrive at the proper tax base for the 'AT. Statement 2. 6n the sale of real propert# the Eonal or fair mar>et value shall be considered as net of 'AT# hence such as value shall be used to arrive at the proper tax base of the 'AT. !a" True# true; !b" $alse# false; !c" True# false; !d" $alse# true. Answer( a /2. Sale b a real estate dealer ate of sale :onsideration :onsideration in the deed of sale $air mar>et value in the assessment rolls Lonal value %aments on the consideration( Iune 2# 2+11   Iu Iune 2# 2+12   Iu Iune 2# 2+1 9nstallment output&input output&input tax on pament of Iune 2# 2+1( !a" %+; !b" %12/#8++; !c" %2/et in the assessment rolls /#8++#+++ Lonal 'alue /#+++#+++ :ost to the seller #+++#+++ %aments on the consideration Assumption of the mortgage buer %2#+++#+++   Ia Ianuar 2# 2+12 ++#+++   Iu Iune 2# 2+12 ++#+++ Ianuar 2 # 2+1 1#8++#+++ 9nstallment output&input 'AT on the pament of Ianuar 2# 2+1( !a" %2/+#+++; !b" %12+#+++; !c" %21#+++; !d" %+ Answer( c  Tax  Tax base !whichever !whichever is the highest" highest" 'alue-added tax !%3#+++#+++ x 127" %ament# Ianuar 2# 2+12 %ament# Iune 2# 2+12 ++#+++ 9nitial paments !not exceeding 237 of the consideration" %ament# Ianuar 2# 2+12 =ortgage assumed b buer $irst pament on the consideration# Ianuar 2# 2+12 6utput&input tax(  Ianuar 2# 2+12( 2+12( %++#+++&%3#+++#+++ %++#+++&%3#+++#+++ x %2#++#+++ 12#+++  Iune 2# 2+12( %++#+++&%3#+++#++ %++#+++&%3#+++#+++ + x ++#+++ *2#+++  Ianuar 2# 2+1( 2+1( %++#+++&%3#+++#+++ %++#+++&%3#+++#+++ x %1#8++#+++ 21#+++ /3. Sale b a real estate dealer ate of sale :onsideration :onsideration in the deed of sale $air mar>et in the assessment rolls Lonal value :ost to the seller %aments on the consideration( Assumption of mortgage b buer

%3#+++#+++ % +  ++#+++ % ++#+++ % %1#2++#+++ %

++ 2#+++#+++ %2#++#+++

% % %

Iune 2# 2+12 %#+++#+++ 3#1++#+++ /#ut"ut taxe# Le##: 8n"ut taxe# Eual#: Value-added tax "a*a(le T%e in"ut are t%e value-added taxe# "aid on t%e: 0a ,ur)%a#e# 0or i&"ortant o: 01 aterial# u#ed in t%e #ale o #ervi)e#2 0 Su""lie# u#e in t%e #ale o #ervi)e#2 06 Servi)e# 0e$!$ #u(-)ontra)t#2 #u(-)ontra)t#2 0 ?a"ital !ood# ore 3xed a##et# #u(/e)t to de"re)iation or a&ortization2 0( ,ur)%a#e o real "ro"ert* u#ed in t%e #ale o #ervi)e#2 0) Tran#itional in"ut tax$ 0See ,late 1 and ,late 

$ Exa&"le# o value-added tax"a*er# on #ale o #ervi)e# 0See A""endi)e#2 0a ?on#tru)tion and #ervi)e )onta)tor#2 )onta)tor#2 0( Le##or# o "ro"ert*' w%et%er real or "er#onal2 0( Sto)' real e#tate' )o&&er)ial' )u#to&# and i&&i!ration (roer#2

0) ,ro"ertie#' o"erator# or ee"er# o %otel#' &otel#' re#t %ou#e#' "en#ion %ou#e#' inn#' re#ort#2 0e ?o&&on )arrier# (* land and #ea relative to t%eir tran#"ort o "a##en!er#' !ood# or )ar!oe# ro& one "la)e in t%e ,%ili""ine# to anot%er "la)e in t%e ,%ili""ine#2 0 Sale# o ele)tri)it* (* !eneration )o&"anie#' tran#&i##ion' tran#&i##ion' and di#tri(ution )o&"anie#2 0! Servi)e# o ran)%i#e !rantee# o ele)tri) utilitie#' tele"%one and tele!ra"%' radio and televi#ion (road)a#tin! and all t%e ot%er ran)%i#e !rantee#$

3. @hich statement is correct correct 4easing of propert shall be subject to value-added tax on sale of service; !a" 9f the propert is in the %hilippines and the lease agreement was executed in the %hilippines; !b" 9f the propert is in the %hilippines and the lease agreement was executed outside the %hilippines; %hilippines; !c" 9f the propert is in the %hilippines and the lease agreement was within or outside the %hilippines; %hilippines; !d" All of the above. Answer( c

. 9n the value-added tax on sale of services# the output tax is computed( !a" 6n billings of the month; !b" 6n the collections of the month on all billings made; !c" 6n the contract price of contract completed during the taxable period; !d" 6nl and strictl on labor performed under the contract for services. Answer( b *. =r. A is a 'AT- registered building contract( )ross receipt in a month# an tax not included( $rom =r. J# a private propert owner# in the nal pament on the contract price# net of a 37 agreed retention b =r. J %2#83+#+++ $rom =r. K# a pament of a 37 retention on the contract price previousl made b =r. K 1++#+++ $rom =r. L for materials used in the contracts# on a contract for labor and materials 3++#+++ 6utput value-added tax !a" %/1/#+++; !b" %/2#+++; !c" %*2#+++; !d" Some other amount Answer( a

6n gross receipt for =r. J !2#83+#+++ x 127" %/2#+++ 6n gross receipt for =r. K !%1++#+++ x 127" 12#+++ 6n gross receipt for =r. L !%3++#+++ x127" +#+++  Total  Total output 'A 'AT

%/1/#+++

8. Taxpaer is a 'AT-registered person; ata for a month !no 'AT component"( :ash received( $or Guilding completed with a contract price of %3#+++#+++ %#8++#+++ Advances received for building to be constructed ++#+++ :ash received on materials returned to 'AT-suppliers 1++#+++ :ash received from owners# for materials used in construction !not included in the gures above" 1#+++#+++ :ash received from owners for building permit fees 2++#+++ :ash received from 'AT sub-contractors for overpaments ++#+++ :ash paid( To 'AT- registered sub-contractors